Telecom Italia, Energy Transfer lead $3.52 billion day; Rosetta firms; funds gain $301 million

By Paul Deckelman and Paul A. Harris

New York, May 22 - The high-yield primary arena continued to churn out new deals on Thursday. Syndicate sources saw $3.52 billion of new dollar-denominated junk bonds come to market in five tranches, almost tripling the $1.35 billion that got done in two tranches on Wednesday.

The day's biggest deal actually priced off the investment-grade desks of the participating banks, as Rome-based communications company Telecom Italia priced a quickly shopped $1.5 billion of 10-year notes.

Another overseas issuer was Teekay Offshore Partners LP, a Bermuda-based provider of marine transportation and other services to the offshore energy industry; it priced $275 million of five-year notes as a regularly scheduled forward calendar deal.

On the domestic scene, Dallas-based Energy Transfer Equity, LP, an energy midstream services provider, brought a $700 million same-day add-on offering of 10-year bonds to market, upsizing that deal from an originally announced $500 million.

Post Holdings, Inc., a St. Louis-based manufacturer of popular breakfast cereals, served up $630 million of 8.5-year notes off the forward calendar.

And DriveTime Automotive Group, Inc., a Phoenix-based used-car and truck retailer, tapped the market for $400 million via a scheduled offering of seven-year secured notes.

Traders saw the new Post, Energy Transfer Equity and Telecom Italia deals all at somewhat firmer levels in the aftermarket.

But the most notable name in the secondary sphere - for a second straight session - was Wednesday's offering of 10-year bonds from energy operator Rosetta Resources Inc. The Houston-based company's new deal had shot up on heavy volume when it began trading after pricing, and it racked up almost as many trades on Thursday while continuing to firm smartly.

Also seen doing better was Wednesday's other new deal, from Ceridian LLC; that issue of 3.5-year paper had come to market too late on Wednesday for any trading at that time but was quoted up on Thursday.

Traders saw little non-new-deal activity on Thursday - the last full trading day this week, with an early close slated for Friday ahead of the Memorial Day holiday, which will see U.S. financial markets shuttered on Monday.

Statistical market performance indicators were mixed for a fifth consecutive session on Thursday.

Meanwhile, another indicator - the flow of fresh money into or out of high-yield mutual funds and exchange-traded funds, considered a good gauge of overall junk market liquidity trends - was higher for a third straight week.

Junk funds gain $301 million

As activity was winding down on Thursday, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $301 million more came into those funds than left them in the week ended Wednesday.

This week's addition of funds was the third consecutive inflow. Last week, Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., reported a $472 million cash injection for the seven-day period ended May 14, and that inflow followed the $368 million liquidity injection seen in the week ended May 7.

Inflows over the last three weeks have now totaled $1.14 billion - the start of a new strengthening trend following a recent stretch of choppiness; after a strong start to the year, the previous few weeks had seen the emergence of a back-and-forth pattern of essentially alternating weeks of inflows and outflows, according to a Prospect News analysis of the figures.

Inflows had dominated the early part of the year - in its first 11 weeks, ended March 19, inflows had been recorded in nine of those weeks, against just two outflows in the weeks ended Jan. 29 and Feb. 5. At one point, there were six consecutive weeks of inflows totaling an estimated $4.40 billion, according to the analysis.

The week ended March 26, which saw a $196 million outflow, broke that six-week streak and signaled a change in that pattern, with the flows shifting to a more choppy mode.

There were inflows of $493 million and $640 million recorded in the weeks ended April 2 and April 9, respectively, but they were followed by a $223 million outflow in the week ended April 16. That, in turn, led to a $250 million inflow in the week ended April 23, followed by a $631 million outflow in the week ended April 30 and then the inflows seen over the past three weeks.

Counting the latest week's results, there have now been 15 inflows seen to the weekly only reporting funds in the 20 weeks since the start of the year, according to the analysis, against five outflows.

The latest week's inflow raised the year-to-date cumulative net inflow number to an estimated $4.48 billion, according to the analysis - a new peak level for the year so far. That was up from the previous week's figure of an estimated $4.18 billion, the previous peak level for the year so far.

Cumulative fund-flow estimates may be revised upward or downward or may be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

In 2013, inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1.27 billion, according to the analysis.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime saw an inflow about double the AMG/Lipper amount in the latest week, a market source said.

EPFR's methodology differs from AMG/Lipper's, as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, including strictly European junk funds and broader global funds, versus AMG/Lipper's strictly domestic orientation. Accordingly, the two services' weekly numbers are also generally quite different. While their respective weekly results usually point pretty much in the same direction, that has not always been the case; in some weeks in which AMG/Lipper showed outflows, EPFR saw overall inflows.

The latest weekly inflow was EPFR's 18th such gain recorded in the 20 weeks since the start of the year, versus just two outflows, in the weeks ended Jan. 29 and Feb. 5.

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming into or leaving the more than $1 trillion junk market, their flows are very observable and quantifiable, more so than those of other, larger cash sources, and thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years and which has mostly continued on into this year as well.

Telecom Italia dollar deal

The pace of the primary market remained brisk on Thursday. Five issuers completed single-tranche, dollar-denominated high-yield deals, raising a combined total of $3.52 billion.

Two of the five came as drive-bys.

One was officially upsized relative to the announced size.

Executions appeared solid, as one deal priced inside of price talk, one priced at the tight end, and the remaining three priced on top of talk.

Telecom Italia launched and priced a $1.5 billion issue of 5.303% non-callable senior notes (Ba1/BB+/BBB-) at a 275 basis points spread to Treasuries.

The spread came at the tight end of the 275 bps to 287.5 bps spread talk.

The reoffer price was par, and the notes yield 5.303%.

The deal was priced on the investment-grade desk.

Citigroup Global Markets, Goldman Sachs & Co., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC were the active bookrunners.

Citigroup will bill and deliver.

Energy Transfer upsizes

Energy Transfer Equity priced an upsized $700 million tack-on to its non-callable 5 7/8% senior notes due Jan. 15, 2024 (Ba2/BB) at 102 to yield 5.602%.

The deal was upsized from $500 million.

The reoffer price came on top of price talk.

Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Morgan Stanley and RBC Capital Markets LLC were the joint bookrunners for the debt refinancing.

Post prices inside of talk

Post Holdings launched and priced a $630 million issue of senior notes due Dec. 15, 2022 (B2/B) at par to yield 6%.

The yield printed 12.5 bps inside of yield talk in the 6¼% area.

Joint bookrunner Barclays will bill and deliver for the acquisition financing. Credit Suisse, Wells Fargo Securities LLC, Goldman Sachs, BMO Securities and Nomura were also joint bookrunners.

DriveTime $400 million secured

DriveTime Automotive Group and DT Acceptance Corp. priced a $400 million issue of seven-year senior secured notes (B3/B) at par to yield 8%.

The yield printed on top of yield talk.

Wells Fargo was the left bookrunner for the debt refinancing. Citigroup and Deutsche Bank were the joint bookrunners.

Teekay atop coupon talk

Teekay Offshore Partners priced a $275 million issue of 6% five-year senior notes at par to yield 6%.

The deal came into the market at benchmark size and was talked to price with a 6% coupon.

Sterne Agee & Leach Inc. was the physical bookrunner for the multi-purpose financing. DNB Markets Inc. was the joint bookrunner.

Talking the deals

Looking to the Friday session, Enova International, Inc. talked its $500 million offering of seven-year senior notes (B3/B) to yield 9¾% to 10%.

Books closed Thursday, and the deal is set to price early Friday.

Jefferies LLC is the bookrunner.

Galapagos Holdings SA set price talk for its €775 million three-part offering of high-yield notes.

The deal, which is set to price on Friday, will help to finance Dusseldorf, Germany-based GEA Group AG's spinoff of its heat exchangers business to Triton Advisers Ltd.

A €525 million two-part offering of seven-year senior secured notes (B1//) is coming in a tranche of floating-rate notes talked to price at par with a 475 bps to 500 basis points spread to Euribor and fixed-rate notes talked to yield 5½% to 5¾%. Tranche sizes remain to be determined.

The financing also includes a €250 million tranche of eight-year senior unsecured fixed-rate notes (Caa1//) that are talked to yield 7% to 7¼%.

Joint bookrunner Deutsche Bank will bill and deliver. Commerzbank, ING, RBC, Royal Bank of Scotland and UniCredit are also joint bookrunners.

Sunshine starts roadshow

There was one roadshow announcement on Thursday.

Sunshine Oilsands Ltd. began a roadshow for a $325 million offering of five-year senior secured notes.

The non-rated deal is set to price in early June.

Imperial Capital the physical bookrunner.

Proceeds, together with proceeds from a concurrent $70 million equity offering, will be used to fund expenditures and for general corporate purposes as well as to settle outstanding accounts payable and pre-fund 18 months of cash interest.

Post pops up

In the secondary market, two separate traders saw the new 6% notes due December 2022 from Post Holdings as having firmed to a 100½ to 100¾ context when they began trading around, up from their par pricing level.

One of the traders said that the new Post deal was moving around "on decent volume."

A third trader pegged the cereal-maker's bonds somewhere between 100 3/8 and 1003/4.

Energy Transfer improves

All three of those traders, meanwhile, saw Energy Transfer Equity's big add-on to its existing 5 7/8% notes due 2024 trading between 103 and 103½ when the notes reached the aftermarket.

That was well up from the 102 level at which the upsized addition had priced.

Telecom trades near issue

A trader saw Telecom Italia's 5.303% notes due 2024 in a par to 100¼ bid context.

That was up slightly from the issue's par pricing level.

Traders meantime did not see any aftermarket dealings in the new DriveTime Automotive Group 8% senior secured notes due 2021, even though the car-seller's $400 million deal had priced at par during the early part of the day.

They also saw no immediate secondary activity in Teekay Offshore Partners' 6% notes due 2019, which had also priced at par, though much later in the session.

Rosetta rally continues

For a second consecutive session, a trader said that the new issue of 5 7/8% notes due 2024 from oil and natural gas exploration and production company Rosetta Resources "was one of your most active bonds today."

He saw more than $67 million of the bonds having traded, going out in a 102 to 102½ bid context.

A second saw the new notes around 102 to 102 1/8.

Rosetta had priced the $500 million issue at par on Wednesday after the quickly shopped issue had been upsized from an originally announced $400 million.

Traders said the new bonds had started climbing "almost from the get-go" when they were freed to trade, as one put it, ultimately racking up more than $79 million traded by Wednesday's close.

The bonds had firmed smartly, rising to between 101½ and 102. They then continued to firm on Tuesday, pushing above the 102 level.

Ceridian seen better

Wednesday's other offering - from Minneapolis-based human resources software and services provider Ceridian and co-issuer Comdata Inc. - had come to market too late in that session to trade, but they were seen in the market on Thursday.

A trader put them in a 101 to 101½ context but said that he had only seen them in the morning and really not beyond that.

The $855 million of 8 1/8% 3.5-year bonds due November 2017 had priced at 99.75 to yield 8.207%.

Tuesday deals a mixed bag

Going back a little further, a trader saw London-based communications satellite operator Inmarsat plc's $1 billion of 4 7/8% notes due 2022 continuing to gain altitude on Thursday, quoting them at 100 3/8 bid, 100 7/8 offered, which he called up 5/8 point on the day.

That quickly marketed megadeal had priced at 99.191 late in Tuesday's session via the company's Inmarsat Finance plc subsidiary, yielding 5%.

The new bonds had traded up a little from their issue price but still mostly at or below par late in the day Tuesday and again on Wednesday before gaining on Thursday.

Cablevision Systems Corp.'s 5¼% notes due 2024 were seen off by 3/8 point on Thursday at 99½ bid, 99¾ offered, a market source said.

The Bethpage, N.Y.-based cable television provider had driven by the junk market on Tuesday with its $750 million issue, upsized from $500 million. The bonds had priced at par via the company's CSC Holdings LLC subsidiary but had mostly traded below that level when they moved into the aftermarket.

New deals dominate

A trader said that clearly Thursday's market activity was just about "100% all new deals. The overall tone in the secondary was that new issues were dominant and were trading up."

A second trader characterized the day as "very boring and quiet."

Only half-jokingly, he suggested that "a lot of people looked like they were trying to stretch the [upcoming] three-day holiday weekend into maybe a four-day or even a five-day weekend."

The traders all predicted an even quieter session for Friday, with the Securities Industry and Financial Markets Association recommending a 2 p.m. ET early close ahead of the three-day Memorial Day holiday weekend, which will see financial markets in the U.S. shuttered on Monday.

Indicators remain mixed

Statistical junk performance indicators were seen by market sources as having been mixed for a fifth consecutive session on Wednesday.

The Markit Series 22 index saw a second consecutive improvement, jumping to 107 13/16 bid, 107 7/8 offered, after having risen by 5/32 point on Wednesday.

However, the KDP High Yield Daily index put up a second straight loss, falling by 4 bps to end at 74.89, after having retreated by 3 bps on Wednesday.

Its yield, meanwhile, rose by 2 bps to 5.11% after having been unchanged on Wednesday.

The widely followed Merrill Lynch High Yield Master II index suffered its second straight downturn on Thursday after three consecutive sessions before that on the upside. It lost 0.018% on top of Wednesday's 0.038% setback.

The loss dropped its year-to-date return to 4.385% from Wednesday's 4.404%. Both of those levels were down from the 4.443% recorded on Tuesday, its peak level for 2014 so far.

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